After being depressed for several years, Cambodia’s property market is now recovering slowly, fuelled by strong economic growth and the new foreign ownership law.

Despite the absence of official property price statistics, land prices in the country were estimated to have been rising recently. In Phnom Penh, Cambodia’s capital, land prices rose by an average of 15% during the first half of 2013 from the same period a year earlier, to US$2,350 per square meter (sq. m.), according to local real estate experts.

In the Boeung Keng Kang 1(BKK1) area, land prices stood between US$3,500 and US$4,000 per square meter (sq. m.) in mid-2013, up from the pre-crisis levels of between US$3,000 and US$3,500 in 2008, according to Kuy Vat CEO of VTrust Group. The increase in land prices can be attributed to the increasing number of business and integrated services in the area.

In Takamau, the capital of Kandal Province, land values also increased by about 10% to 15% during the first half of 2013 from the same period last year, mainly due to the plan to build a new road, the Tumpun National Highway 2, according to some local property experts.

Sihanoukville, Cambodia'spremier island and beach resort, also saw modest increase in land prices, estimated at about 5%, during the first half of 2013 from a year ago, mainly fuelled by the construction of several hotels in the area.

Housing loans are up. During the first nine months of 2013, housing loans rose by about 11% y-o-y to US$103.6 million, according to Mrs. Phan, Executive Vice President of a local bank. Their average interest rate ranges between 9% and 11%, according to Canadia Bank.

There is also a noticeable increase in residential construction activity, including Casa Meridian 2, a 30-storey building, which began in late 2013 and expected to be completed in 2016. Prices for condominium units range from US$8,000 to US$60,000. There is also the ongoing Snake Island (Koh Puos) development project with villas, hotels and offices.

The ground-breaking of a 45-storey twin tower in Phnom Penh's Bassac Mon District, south of the Australian Embassy, is expected early this year.

The number of licensed real estate companies in Cambodia increased in 2013 to 59, up from 40 in the previous year, according to the Association of Evaluation and Real Estate Agents. More foreign companies came in, reflecting property market growth and increased investor confidence.

New foreign ownership law boosts demand
Foreigners are now allowed to own apartments and condominium units, but not land, and therefore not the first floor of buildings, under the new foreign ownership law approved by King Norodom Sihamoni in May 2010. Just after the passing of the law, tax revenues from property-related transactions soared 60% to KHR76.21 billion (US$19.5 million) in 2010, from KHR47.7 billion (US$12.2 million) in 2009.

In 2005, the Cambodian government amended its investment law to allow foreign ownership of buildings. However, the law not then implemented and the idea floundered, since the country was then experiencing one of the biggest property booms in Asia.

Land ownership is against the Constitution and is still out of the question. Land can however be held by foreigners on long (renewable) leases and through majority locally-owned companies incorporated in Cambodia. These structures are argued by lawyers in Cambodia to be safer than legal schemes in any other South East Asian country in which foreign land ownership is formally prohibited.

In Cambodia, apartments are a different thing from flats. Cambodia defines apartments as non-landed housing units in a building, or what is commonly known in the wider world as condominiums. Flats, also known as shop houses, are landed properties, with a ground floor, and up to two or three floors. Flats are the equivalent of row houses.

Foreigners cannot own land in Cambodia. So they can only buy apartments. We would therefore have wanted to survey the prices of apartments. However, very few, in fact almost none, are listed on the websites of realtors in Cambodia. So our survey is about the prices of flats (row houses) and villas.

Rents range from US$9 per sq. m. to US$13 per sq. m. per month. A 65 sq. m. flat costs US$600 per month to rent. A 120 sq. m. flat costs more than twice as much, at around US$1,500 per month.

The gross rental yields for flats in Phnom Penh, i.e., gross return on investment in a flat if fully rented out, ranges from 3.27% to 5.33%.

Villas are more expensive than flats, ranging from around US$3,500 to US$4,500 per sq. m., with smaller villas fetching the higher prices.

Rents are also highest for smaller villas. For example, a 150 sq. m. villa costs around US$13 per sq. m. per month, while a 300 sq. m. villa costs only US$9 per sq. m. per month.
Villas earn poor rental yields, ranging from 2.8% to 3.43%.

Rent: Rents can be freely negotiated and there is no specific tenant protection law.

Tenant Security: There are no limits to the duration of leases, though residential long-term leases usually last for one year. However, the rental agreement may be terminated prior to expiration if either the tenant or the landlord serves a notice one or two months before termination.

In 2013, the Cambodian economy was estimated to have expanded by about 7%, according to the International Monetary Fund (IMF). During the first nine months of 2013, the total number of foreign visitors who visited the Angkor Wat rose by 5.83%.

Cambodia has experienced enormous economic growth over the past few years. From 2000 to 2003, the Cambodian economy grew by an average of 8%, and then by an average of 11.1% from 2004 to 2007. Growth is concentrated in tourism and the textile sector, which is dependent on most favoured nation status agreements.

The economy grew by 6.7% in 2008, but almost stagnated in 2009, due to the global crisis. In 2010, the economy resumed its growth with GDP growth of 6.1%. The total number of tourist arrivals rose by 16% to 2.5 million in 2010.

During 2011 and 2012, the country’s economic growth averaged 7.2%, due to strong rebound in tourism, garments manufacturing, and agriculture, according to the Ministry of Economy and Finance. However, the construction sector, which fuelled Cambodia’s double digit growths for much of the past decade, was still struggling.

Phnom Penh is now an elegant, well-planned, prosperous city – whitewashed, bristling with economic activity. Angkor Wat, built during the glory days of the Khmer Kingdom of Angkor (900AD – 1200AD), attracts hordes of tourists, and Siem Riep is a charming city.

Nevertheless, Cambodia’s population of about 15.4 million is one of the poorest in the world, with a GDP per capita of about US$1,015 in 2013, according to the IMF.

The country is still dependent on foreign assistance, which accounts for about half of the government’s budget.

The Cambodian economy is heavily dollarized; the Riel and the US dollar can be used interchangeably. However, the government has a long-term goal of reducing its reliance on the greenback, which accounts for more than 90% of all currency in circulation in the country, according to the Asian Development Bank (ADB).

The country’s overall inflation rate was estimated at 4.2% in 2013, from 2.5% in 2012, 4.9% in 2011, 3.1% in 2010 and 5.3% in 2009, based on figures from IMF.

Cambodia’s strong man, Prime Minister Hun Sen is one of the world’s longest serving prime ministers having been in power since 1985. In 1997, he seized power from his co-prime minister, Prince Ranariddh. During the recent parliamentary elections held last July 2013, Hun Sen claimed another victory, though the opposition alleged widespread voting irregularities and contested the results of the election. Political activists caution that his rule is increasingly becoming more authoritarian.

Some would call Hun Sen a visionary leader, though there is extensive political and judicial corruption. On the other hand the government is manifestly competent, which appears to be due to Hun Sen’s personal drive and energy.

Pro-landlord rental market

Moderate yields in Phnom Penh

High GDP growth rate

Moderate rental income tax rate

Corrupt, autocratic govt

Serious ownership restrictions

Aid-dependent economy

RESIDENTIAL PROPERTY FACTS

Price (sq.m):
$2,913 For a 120 sq. m. property, usually an apartment.

Rental Yield:
5.33% For a 120 sq. m. property, usually an apartment.

Rent/month:
$1,553 For a 120 sq. m. property.

Income Tax:
14.00% Assumptions: Owners are a non-resident couple drawing US$ / €1,500 per month in rent, with no other local income.

Roundtrip Cost:
7.70% The total cost of buying and then reselling an apartment. Includes: